- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 4. Working Capital and Liquidity
- Subject 1. Cash Conversion Cycle
CFA Practice Question
Which statement(s) is (are) correct?
II. Reducing the inventory turnover will increase the cash cycle and lower the cash balance.
I. The accounts receivable period is always greater than or equal to the length of the cash cycle.
II. Reducing the inventory turnover will increase the cash cycle and lower the cash balance.
A. I and II
B. II only
C. I only
Explanation: The accounts receivable period can be shorter than the cash cycle.
User Contributed Comments 2
User | Comment |
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sheenalim | the accounts receivable period can be shorter than the cash cycle or it's always shorter than the cash cycle? |
leftcoast | sheenalim - if you paid your payables the day your inventory is sold, your cash cycle is essentially your receivable period, therefore they would be the same. So the receivable period is always less than or equal to the cash cycle. |